After Green Initiatives’ film screening of ‘Black Gold’ on 21 May 2020, we were glad to see more discussions arising in the community on the subject of ethical coffee.
However, ethical or responsible procurement of goods, and concepts such as Fair Trade are still new to many, and this article touches on the concept of ethical coffee purchase, how it works, and what we need to know.
What is Fair Trade?
Fair Trade is a concept to promote fairness, transparency and sustainable development for producers, through:
- Providing a neutral platform for producers to voice their issues, seek better trade conditions, and price their products in a way that actually reflects the real cost of growing the crops, both economically and socially;
- Facilitating access to various marketing channels, especially in the large distribution channels like retail, hypermarket, food service providers, etc., to create higher awareness among consumers and accelerate the sale, and thus market-share of Fair Trade goods.
- Eventually, it is an effort to improve the living conditions of producers, while transitioning to a more sustainable form of agriculture, hence secure consumption of these goods in the long run, but also improve the health of the planet.
The movement focuses in particular on commodities, or products which are typically exported from developing countries to developed countries, but also domestic markets. Most notably, products such as handicrafts, coffee, cocoa, wine, sugar, fruit, flowers and gold.
[To read our last article about ‘What is the real cost of our coffee?’ visit this link or click on the image below]
To most consumers the only exposure to Fair Trade is through the labeling on the package of certain goods. Very often, consumers do not even notice this information if they have not received prior information. Others may access them outlets like Worldshop, which are specialized retail outlets offering and promoting Fair Trade products. But that accounts for only a very small portion of Fair Trade sales.
In total, ethical and Fair Trade products take up less than 1% of the market.
The Fair Trade movement is supported by an informal network of global associations that define the standards, give certifications, audit the supply chain, consolidate the data and advocate the values. Some of them that you may have heard of include:
- FLO International
- Fair Trade USA
- Global Goods Partners (GGP)
- World Fair Trade Organization
- the European Fair Trade Association (EFTA)
and a handful of other names.
How Does This Arrangement Work?
Taking Fairtrade International (former FLO International) as an example, the standard for coffee could be simplified to be understood as a reference market price that can never be below the Fairtrade Minimum Price and a Fairtrade Premium that can never be below the levels defined in the Fairtrade Minimum Price and Premium table, plus arrangements like pre-finance, payment terms, sustaining trade and so on, that give producers certain advantages.
The Minimum Price part is easy to understand. It aims to protect farmers from volatile coffee price in the globe. It doesn’t stop farmers to negotiate a higher price though on the basis of quality and other factors, or simply when the market price is above. Fairtrade premium is an extra sum of money paid on top of the selling price that farmers and workers invest in business or community projects of their choice.
Only those productions that meet these standards are eligible for Fairtrade certification. Coffee is the most well-established Fair Trade commodity, within the Fair Trade product range in terms of production volume as well as the number of producers involved. The 2019 Year Book of Fairtrade International shows that there are 582 Fairtrade certified coffee producer organizations across 32 countries, with a total of 762,392 farmer members.
Source: Fair Trade International
How Fair is ‘Fair Trade’ Really?
There has never been a silver bullet, a click-your-finger magic trick for ending resource or grower exploitation. The Fair Trade system has been criticized to be “a marketing scam designed to get people to pay more for basic products or to make middle class people feel better about themselves”. In particular, the fire goes in these directions:
- The premium over Fair Trade products is collected by businesses, employees of co-operatives or used for unnecessary expenses, instead of reaching producers.
- It is often not monitored how much extra retailers charge for Fair Trade goods, so it is rarely possible to determine how much producers benefit from the premium that consumers pay.
- Even though only a small amount is sold under Fair Trade price (often because of short demand), the whole production has to meet the standards to be certified. The cost incurred to produce Fair Trade goods is often hardly covered by the extra price received.
- The system falsely claims that Fair Trade producers get higher price, but fails to disclose the extra price retailers charge on consumers, how much of this reaches the developing world, and how this is spent in the developing world.
- Adherence to Fair Trade standards by producers has been poor, and enforcement of standards is weak.
- Fairtrade tends to exclude the poorest countries.”
“Countries ranked by the World Bank as upper middle-income account for 54% of producer organizations having received Fairtrade certification against 21% in the case of low-income countries. As for lease developed countries, they only account for 13.5% of effective certification demand.
Direct Trade and #SupportYourLocal
Direct Trade is a derivative of the Fair Trade movement and the outcome of thoughts that intend to make improvements.
Direct Trade allows suppliers to receive higher prices i.e. much closer to the retail value of the end product. It began with suppliers using their relationships started in a Fair Trade system to autonomously springboard into direct sales relationships they negotiated themselves.
A remarkable case is the electronic World Trade Platform or eWTP as it is popularly called, that the Alibaba Group built in the Republic of Rwanda. By selling directly to end consumers, the farmers in Rwanda earned 4 dollars more for every kilogram of coffee they sold through this platform. 1,500kg coffee beans from Rwanda Farmers Coffee Company were sold in a second on an online promotion via livestreaming after Wei Ya, an internet popularity in China, announced the start of auctioning to over 10 million viewers, which is said to be the yearly sales under normal conditions. The brand she promoted happens to be a Fairtrade-certified brand.
In 2019, Alibaba opened its second eWTP hub in Africa in Ethiopia.
Source: Alizila News
Another informal movement that has gathered much attention recently is supporting local producers and goods. As Covid-19 paused global trade and people were instructed to not move around too much, many have begun to notice what has already been existing around us all the time:
What is available in my country? What does my neighborhood offer? What is the opportunity in my domestic market? What can I do to help local businesses? How can I play a role in contributing to a better environment?
The answer to all of the above questions is the same: consume locally. That reduces environmental footprint, supports local communities, and reduces pollution caused by shipping of goods.
From our research, we find that the Fair Trade movement has definitely helped workers and communities across the world and met with considerable success in improving access to education, healthcare and opportunities for women. Fair Trade cooperatives create a space of solidarity and promote an entrepreneurial spirit among growers.
However, critics of the certification have often pointed out the high overheads and certification costs absorbing a steady portion of the funds that could go to poor growers, and that the Fair Trade system works within the current system rather than establish a new, fairer, fully autonomous trading system. There are also considerable criticisms about branding and name use (for ex. Fair Trade versus Fairtrade).
Source: Small Farmers, Big Change
In our next article we will provide you with information on where to buy responsibly sourced, ethically produced coffee in China. If you know brands or sellers in China selling responsibly-grown and –sourced coffee please send us an email at firstname.lastname@example.org or add us on WeChat. We hope to publish this piece next week.